How are Barbadians doing with the management of their debt? It appears not too well, according to this country’s Supervisor of Insolvency Ms Esther Springer. But should citizens be surprised by her revelation that we are drowning in debt.
Some may suggest that the same scenario exists at the national level where the country is carrying a substantial debt load that worries many financial experts. They lament our ability to manage such debt and under what strictures will that loan financing come.
Under normal circumstances, where employment opportunities were available and job security is stable, people tend to risk engaging with financial institutions to borrow more money.
The last two years, and even the period prior, were rather unusual times for Barbadians. The economy was in a bad state, unemployment remains high, and the COVID-19 pandemic has been so devastating, it has removed the word “stability” from our vocabulary.
And so, when Ms Springer told the House of Assembly during the 2022-2023 Estimates of Revenue and Expenditure Debate that too many Barbadians were finding it difficult to manage their debt and service their obligations, it did not create the kind of shock some expected.
Who are we to blame for this situation? Is it individuals who lack discipline? Is it commercial banks, credit unions and other fast cash lenders that have sprung up in recent years enticing people with pre-approved credit? Is it government that has failed to properly regulate the financial sector and protect ordinary citizens from exploitative and predatory practices of some finance houses?
We contend it is a combination of all. However, at the end of the day it is for Government to ensure that a wild west situation does not develop.
The fact is that if the financial sector is faced with a high level of delinquency and citizens who are under water because their assets are valued much lower than their debts, then the financial sector and government have a problem on their hands.
“We are seeing people as young as 23 and up to the age of 72 suffering with severe debt problems. We are seeing people with eight credit cards using one credit card to pay the other. We are seeing businesses which start out, but because of a lack of awareness of what is out there, they are getting themselves into financial trouble,” the senior government official told the House of Assembly last week.
This is a frightening situation in which a young person or retiree should find themselves. While the young person has time on their hands in which to clear the debt, it may mean that young person may find it difficult to attain other goals such as pursuing higher education or owning a house because their main objective is getting rid of credit card debt.
A retiree with unmanageable debt is a distinct problem due the lack of capacity to earn money.
And of all the lending products that is most difficult to manage it is recurring debt from credit cards and lines of credit. They have a way of being a weighty albatross around the necks of those in their grip.
With interest rates hovering around 25 per cent or more, these products can become a financial mire from which external help is needed for extrication.
Furthermore, with the introduction of the new Fair Credit Reporting Act earlier this year, people with a less than stellar credit history could find themselves shut out from loans or possibly face higher interest or onerous demands from lenders.
And for those who may not have known, your information will be collected from financial institutions that offer credit, such as commercial banks, finance and trust companies, credit unions, as well as insurance companies by the new credit bureau.
It can also collect information from utility companies such as the Barbados Water Authority, Cable & Wireless and the Barbados Light & Power. In addition, companies that offer hire purchase, and other entities such as the Student Revolving Loan Scheme are expected to provide information about their clients’ credit history.
Among the critical pieces of information, the new credit bureau can collect are personal information such as name, date of birth and address; the type of loan or credit and the institution from which you accessed it; all outstanding loans and the terms; information on the assets used to secure the loans; and the status of outstanding loans including the last payment you made.
In this new era, it will be critical for youngsters to be taught about managing debt before they become one of the victims about whom the Supervisor of Insolvency is worried.
